Category: Economics

Real Wages Up, Not Down – Economists Fight

A biased New York Times article on wages being down gets a fisking:

“What keeps my wages high (and yours) is our alternatives…What sets workers wages are the wages of those alternatives…Workers are better educated than ever. That is why I believe that compensation, properly measured, is higher than it was five or ten or twenty or thirty years ago.” – Russel Roberts

Thanks to Tyler @ Marginal Revolution for the pointer.

Real Estate Agents and Dodo Birds

Steven and Stephen, the dynamic duo behind Freaknomics have a bit on Real Estate Agents being added to the Endangered Species list in the New York Times.

Nothing new to anyone with a little understanding of the real estate market and how the internet has dissolved both travel agents and stock brokers. The more conversations I have about the real estate industry, the more I see how ripe for change it is. Nice to see the issue in the NYT.

Let’s say it takes 5 years of owning a home to make it worth the closing costs. Now, let’s say the home sales slow just a tad. Just enough to push out the timeframe to 7 years. As the NYT article reminds us, 7 years ago stock brokers and travel agents had yet to be replaced by online tools.

Now just might be the last opportunity to sell or buy a home with an agent.

Is Closed a Cultural Benefit?

This weekend, I caught up with a college friend in central Wisconsin. Starbucks recently opened their first storefront in Wausau. Given Starbucks’ consistency and my lack of knowledge of other options, I suggested we meet there.

“How about something local, like Jeannie’s Cafe?”, Tom asked.

I’m always up for tasting the local flavor and we planned to meet there.

Neither of us were aware that Jeanie’s, like the majority of downtown Wausau, is closed on Sundays. This reminded me of my time in Germany. There the shops were also closed on Sundays. While I agree, closing at 6pm during the week, noon on Saturday, and all day Sunday, keeps a designated time for personal and preferably family-focused activities, it only works best when everyone plays along. And when the economy isn’t based on retail sales. Conversely, not playing along hurts everyone and can make actually getting things done a modern day, dual-income family a really hassle.

In Wausau, the ice cream shop, chocolate shop, gelato shop, and the downtown enclosed mall were all open – with a couple of patrons in each. With a handful of shops open and the majority closed, I imagine the traffic for the open shops is dramatically lower than what they see on Saturday. The open shops don’t get walk-in traffic from non-open shops.

In the end, Tom and I drove across town to Starbucks, it was packed.

To me, this felt like small-town American example of the EU’s economic issues.

The Economics of Podcasting

First off, this post defines podcasting is an effective way to deliver highly niche audio to a very enthusiastic audience (the World English Bible translated into Klingon or Tips for Triathletes in the Southwestern US for example).

Secondly, the numbers used here are rough and make for easy math.

Let’s say you’re making one show a week for a year. Here’s a quick pass at some costs:

Monthly Server & Bandwidth costs ($40 * 12 months): $480
Production and editing effort per show ($200 * 52 shows): $10,400
Equipment Costs (mics, software, etc): $500

  • Beer, coffee, and other production/editing necessities per show ($20 * 52 shows): $1,040
  • Monthly Server & Bandwidth costs ($150 * 12 months): $1,800
  • Equipment Costs -mics, software, etc ($500 amoritized over 5 years): $100

Let’s say we’d like to gross $40,000 for the year (a fair amount for doing only one show a week).

Adding all this up puts your annual costs at $42,940.

For the sake of easy math, let’s say you have 1,000 listeners – the circulation of a small town Nebraskan newspaper like the Bayard Transcript. Frankly, the worldwide audience for a Klingon version of the Bible is probably a thousand.

Dividing the annual cost ($42,940) by the number of listeners (1,000) and the number of shows (52) makes the cost per listener: $0.8258

That’s less than a $1 per show per listener (iTunes – 99 cents, WalMart – 88 cents, coincidence?). One Dollar. $4 a month. $42.94 a year. Kris over at the Croncast settled on nearly the same numbers.

With numbers as small as these, I don’t see advertisers beating down the doors of podcasters. In the broadcast world, millions of dollars are sunk into spectrum, hardware, and talent. This gives advertisers the upper hand.

Early on, Heineken realized it was easier to start their own podcast than enter into an advertising agreement with the Rock ‘n Roll Geek Show. I agree. The economics of podcasting make it far more attractive to start your own thing than shoehorn in an awkward ad subsidized model.

If we go back to the original podcasting is best with niche audio assumption, there’s a point where the “ad message” is as valuable to the listener as the “show message”. One degreee further and the podcast is produced by the “advertiser” as part of their marketing campaign.

That’s far more interesting.

If your favorite podcaster has a tip jar (Croncast, IT Conversations, Evil Genius Chronicles) I encourage you to give them a dollar for every show you’ve enjoyed.

Micropayment pioneer Scott McCloud digs into this same issue in his I Can’t Stop Thinking comic.

Auto Insurance Companies Gamble Double or Nothing

This morning, NPR reported on a study finding auto insurance rates in No-Fault states 20% higher and rising more quickly than in “Fault” states.

In a No-Fault state, each driver’s insurance pays for their claim. Elsewhere the accident-causing driver’s insurance pays for both claim.

This means insurance companies prefer the double-or-nothing gamble over having to always pay something. Rather than having an incentive to make the roads safer as a whole (No-Fault), insurance companies are betting their customers to never be at fault. The end result – a greater chance the most dangerous drivers have no insurance (no one will carry them or they can’t afford it) and a lower chance your rates will go up. Seems to me, this keeps accident rates steady.

Gas Prices are like Bad Haircuts

Overheard at the Dunn Bros in downtown St. Paul:

“It’s like gambling, losing all that money at the gas pumps these days.”

Complaining about gas prices is like complaining about a bad haircut. Each of us has the power to change the impact it has on us. In the case of cars; drive less, use public transit, bike, buy a car that gets better than a mile per gallon, or just stop whining.

Similarly, it should be illegal to complain about traffic and gas prices. They’re directly correlated.

To finish the metaphor, in the case of bad haircuts; get it re-cut by the same stylist, get a wig, re-cut it yourself, get a new stylist, let it grow out.

You Expect What You Pay For

Recently – a collegue recounted his experience selling a fully-capable product with a price less than half its competitors.

“After the presentation, the customer turned to the sales representative and asked, ‘What’s wrong with it?'”

This, more than 78 years after J. Walter Thompson’s research for Pond’s Cold Cream proved that price and quality are directly correlated in customers’ minds

Compare the potential customer’s – “What’s wrong with it?” – with the following from JWT’s 1926 Pond’s customer research:

“Reasonable in price, used by everyone, many women had begun to think that they could not be as good as creams that were more costly or that were imported.”

This strategy also works in the service industry, illustrated by this exchange between a collegue and an industry leader:

“How to do you get clients to buy into your recommendations?”

“Charge more.”